Sterling’s strengthened and the FTSE 100 has weakened. That’s the broad reaction to the minutes of the Bank of England’s latest meeting which showed two of the central bank’s top brass want to raise interest rates for the first time in more than three years, FastFT reports.
The index of the 100 largest companies listed in London was down 0.4 per cent at 6750.46 in early afternoon trading, taking its drop to 1.9 per cent since it reached a high for the year of 6,894.88 in the middle of May.
As with European stocks, sentiment towards the FTSE 100 has soured in recent months as the crisis in Ukraine potentially adds a fresh headwind for the eurozone economy.
Analysts at Barclays argue that the correction for the FTSE - which had clocked a gain of 1.9 per cent until the middle of May - is overdone.
The fortunes of the companies on the index, they argue, are more closely tied to the outlook for global growth. Almost half of the market value comes from companies in global sectors including energy, banking and consumer goods. So:
“This means the index should benefit from the global growth reacceleration that we expect in H2. We expect global growth to be close to 4 per cent in H2, its strongest semester in close to three years.”
The pound, though, has edged up 0.3 per cent against the dollar to $1.6649 and strengthened a similar amount against the euro in the wake of the minutes from the Monetary Policy Committee (MPC). Sterling’s strength has already proved a headache for some UK companies, including defence contractor BAE Systems.
Analysts at Barclays reckon the MPC won’t make loud enough noises about future rate rises - and their pace - to push the pound back above $1.70.
The outlook for the FTSE over the rest of the year could prove a tussle between global growth and how quickly the Bank of England tightens monetary policy. Place your bets.
